Robots Everywhere Corporation (REC) is a small industrial equipment company loca

Question

Robots Everywhere Corporation (REC) is a small industrial equipment company located north of Boston. It was founded in 1990 by recent engineering graduates who had a dream of making robots a common household item. REC designs and builds robots. It uses technology in navigation, mobility, manipulation and artificial intelligence to build robots. Their robots have been used for many uses including space exploration and bomb detection. The company has two segments: Defense and Security Robots and Remote Presence Robots. Recently it was decided to enter a new segment: Home Robots. In particular, the marketing department decided to focus on domestic, residential cleaning to exploit the booming growth in household machines and an increasing demand for items that allow people to accomplish more in their daily lives. The company, recognized as a well-established robotics company offering military and research products focusing on space and defense sector has grown a from a single product manufacturer with annual sales of $180,000 to a multi-product manufacturer $50 million firms in a little over ten years. Robots Everywhere have a strong reputation for manufacturing high-quality products with on-time customer delivery. The company also emphasizes state-of-the-art technology in its product design, production, information, and delivery systems.

REC’s decision to enter the home residential cleaning market occurred in 2001. In particular, the marketing department decided to focus on domestic, residential cleaning to exploit the booming growth in household smart gadgets and an increasing demand for items that allow people to accomplish more in their daily lives. Although Robots Everywhere Corporation was not in the residential cleaning business the company decided to pursue an aggressive strategy of selling high-quality robotic vacuum cleaners at affordable prices. The robotic vacuum cleaner is called the Zumba. The Zumba is a compact, computerized vacuum cleaner that automatically guides itself around your home. Like a conventional cleaner, it picks up dirt with spinning brushes and a vacuum. There’s a side-mounted, flailing brush that pushes dirt underneath the machine and, once there, two more counter-rotating brushes pick up the dirt and direct it to the vacuum which sucks it away into the storage bin. The Zumba moves around your room with two large wheels. Power comes from a NiMH rechargeable battery pack. When it’s finished it goes back to its docking station and recharges for next time.

REC is not the first company to manufacture a robotic vacuum cleaner. However, the product is fairly new and it is fairly difficult to forecast the sales of the Zumba. REC is betting that in starting in 2002 the robotic vacuum cleaner industry will grow at a slow but steady state as consumers upgrade their regular vacuums with robotic vacuums with the predicted slow but steady growth in the economy. This decision poses some risks, given that there is a “mixed bag” of opinions regarding the growth of the electronics sector in 2002. The decision was made to pursue the residential vacuum user, through a strategy focused on shipping low-cost, high-quality robotic vacuum cleaners through large retailers who focus on electronics and other residential appliances and other residential products.

Robotics Everywhere Corporation will assemble the robotic vacuum cleaners in its own facilities but intends to outsource many of the key product components and subassemblies, including the Advanced Power System (APS) 3000 mAh NiMH Battery, a component that will be standard on each vacuum cleaner. The decision to outsource the power system resulted from an executive-level insourcing/outsourcing study that concluded the cost to manufacture the power system in-house was highly prohibitive. The product requires production capabilities that are beyond REC’s current expertise. Marketing estimates that first-year demand for the new robotic vacuum cleaner, and therefore the power system, would be approximately 500,000 units, with a 20% growth expected for year two. Expected pricing for the robotic vacuum cleaner will be under $1000. The APS 3000 mAh NiMH battery demands depend totally on final product demand, which can be volatile.

Exhibit 1 details the monthly sales forecast for the Zumba vacuum cleaner. However, given the volatility of the electronics market and REC's limited experience with marketing to large retailers, marketing estimates, with 95% confidence that actual demand will likely be between 400,000 and 600,000 units. As with most high technology companies, adequate supplier capacity is a critical issue. Taking a lesson from the demands placed on it by its current customers, Robotics Everywhere Corporation will seek some assurance from its suppliers that they can increase the supply of components by 25% within four weeks’ notice of changing market conditions. Supplier responsiveness and ability to satisfy Robotics Everywhere Corporation’s volume requirements will be critical.

Advanced Power System (APS) 3000 mAh NiMH Battery Market Information

REC recognizes that APS 3000 mAh NiMH Battery demand is growing rapidly, although actual numbers are difficult to obtain. One of the challenges REC faces, and perhaps a major reason why REC may want to quickly “lock in” supplier capacity, is that other industries use similar batteries as are used in the robotic vacuum cleaner. In particular, producers of video game joysticks, remote-controlled cars, competition robots, TETRIX motors and electronics and other robotics products are moving aggressively in the use of the NiMH rechargeable batteries.

Porters ‘five forces are named after Michael E. Porter. These forces comprise of the following:

Competition in the industry

Potential of new entrants into the industry

Power of suppliers

Power of Customers

Threat of Substitution

Perform Porters’ five forces analysis for the case?

Explanation / Answer

The rivalry among existing competitors is not too fierce. Relatively fewer firms are specialized in the kind of products that REC is offering to its customers and each firm’s capabilities differ slightly. Without indulging in price war, the firms are more focused in demonstrating to potential customers how their product will suit to the needs of the customers and thus exploit the booming growth in household smart gadgets.

There is a booming growth in household machines and an increasing demand for items, particularty in residential cleaning, which will allow people to preform their daily chores efficiently. Market for robotic vacuum cleaner is still young with low entry barriers and has a huge growth potential. There will always be threats of mushroom company growing every now and then making the threat of new entry high, so staying innovative is the key for REC.

REC has intended to outsource many of the key product components and subassemblies, including the Advanced Power System (APS) 3000 mAh NiMH Battery, a critical component mandatory for each product. There is a very high demand for APS among other industries also such as video game joysticks producers, competition robots and other robotic product manufacturers etc. Suppliers thus have a lot of power to satisfy the market demands of REC.

Currently, REC’s customers have high buying power because the costs of switching products is relatively low. They can easily switch from one type to another. But REC can do a better job implementing switching costs so that the customers get locked-in into its products by creating a market with large retailers and providing high customer service with its state-of-the-art technology.

The threat of substitution is relatively high for robotic vacuum cleaner industry. REC has brought a fairly new product in the market and likewise a new entrant can come up with a similar or better product with affordable price as entry barrier is low. But opportunity also lies to take over the industry and become the leader as there is no dominant firm in the industry currently. REC should continue to invest more into creating innovative product leading to more added value to its customers. This will keep the products desirable in the market and help the firm distinguish itself from its competitors.

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